Open the (MGT499-W1) file for the instructions. There is 2 other PowerPoints file to read and understand to answer the questions. I will upload another file to respond to later
Chapter 1
The text discusses strategic trade-offs that are different between Walmart and Nordstrom even though they are in the same industry. Think of another industry that you know fairly well and select two firms there that also have made very different choices for these trade-offs. Describe some of the differences between these firms. What type of trade-off decisions have these firms made?
Chapter 2
Identify an industry that is undergoing intense competition or is being featured in the business press. Discuss how scenario planning might be used by companies to prepare for future events. Can some industries benefit more than others from this type of process? Explain why.
IMPORTANT! Read the following discussion board instructions and grading criteria as a rubric.
‘Quality’ (10 points), ‘Quantity’ (5 points), and ‘Frequency’ (10 points) are the primary evaluation criteria:
Quality is demonstrated by your ability to “carry” the insights of the respective Chapter into your posts.
Quantity: No maximum number of posting. However, three is the minimum number of posts to get minimum points.
Frequency is also one of the primary evaluation criteria as a week-long participation assignment. Participate as often as possible throughout each week. For example, ‘3 postings in one day’ will get a lower frequency grade than ‘3 postings over the multiple days’.
Do not post at the last minute; you will not receive the max points. Also, you must give depth to the discussion to receive the points.
Related examples from the industry that illustrates these concepts and current events issues/commentaries are highly encouraged.
Participate as often as possible throughout each week as a week-long participation assignment.
CHAPTER 1
What Is Strategy?
©ISerg/iStock/Getty Images RF
©McGraw-Hill Education.
All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
©McGraw-Hill Education.
Be sure to see the NEW Teacher’s Resource Manual located in the Connect Library under Instructor’s Resources.
1
The AFI Strategy Framework (1 of 4)
Jump to Description in Appendix 1.
©McGraw-Hill Education.
Exhibit 1.3
2
Learning Objectives
LO 1-1 Explain the role of strategy in a firm’s quest for competitive advantage.
LO 1-2 Define competitive advantage, sustainable competitive advantage, competitive disadvantage, and competitive parity.
LO 1-3 Describe the roles of vision, mission and values in a firm’s strategy.
LO 1-4 Evaluate the strategic implications of product-oriented and customer-oriented vision statements.
LO 1-5 Justify why anchoring a firm in ethical core values is essential for long-term success.
LO 1-6 Explain the AFI strategy framework.
©McGraw-Hill Education.
3
Strategy
A set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.
To achieve superior performance, companies compete for resources:
New ventures: financial and human capital
Existing companies: profitable growth
Charities: donations
Universities: the best students and professors
Sports teams: championships
Celebrities: media attention
©McGraw-Hill Education.
Instructors:
The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides more background with the blending of military and business strategy discussed. (LO 1-1).
4
What Is a Good Strategy?
A diagnosis of the competitive challenge.
Analysis
A guiding policy to address the competitive challenge.
Formulation
A set of coherent actions to implement the firm’s guiding policy.
Implementation
©McGraw-Hill Education.
As highlighted in the Chapter Case, Tesla, a new entrant in the automotive industry, is competing with established U.S. companies such as GM, Ford, and Chrysler and also with foreign automakers Toyota, Honda, Mercedes, and BMW, among others, for customers. In any competitive situation, a good strategy enables a firm to achieve superior performance relative to its competitors.
Instructors:
The digital companion to this book McGraw-Hill Connect has a case exercise on this section of the textbook. It provides more background with a short case on Nvidia and builds student confidence on how strategy helps build competitive advantage. (LO 1-1).
5
Elements of a Good Strategy: Analysis
Diagnosis of the competitive challenge
Analysis of the firm’s internal and external environments
Example: Tesla
Vision: “accelerate the world’s transition to sustainable transport.”
Goal: zero-emission electric vehicles that are attractive and affordable
©McGraw-Hill Education.
A good strategy needs to start with a clear and critical diagnosis of the competitive challenge. Musk, Tesla’s co-founder and CEO, describes himself as an “engineer and entrepreneur who builds and operates companies to solve environmental, social, and economic challenges.”5 Tesla was founded with the vision to “accelerate the world’s transition to sustainable transport.”
To accomplish this mission, Tesla must build zero-emission electric vehicles that are attractive and affordable. Beyond achieving a competitive advantage for Tesla, Musk is working to set a new standard in automotive technology. He hopes that zero-emission electric vehicles will one day replace gasoline-powered cars.
6
Elements of a Good Strategy: Formulation
Effective guiding policy
Backed by strategic commitments
Investments
Changes
Example: Tesla
Cost-competitive mass-market vehicle
$5b investment in lithium-ion battery plant in Nevada
©McGraw-Hill Education.
To address the competitive challenge, Tesla’s current guiding policy is to build a cost-competitive mass-market vehicle such as the new Model 3 (this is also Step 3 in Tesla’s “Secret Strategy,” as discussed in the Chapter Case). Tesla’s formulated strategy is consistent with its mission and the competitive challenge identified. It also requires significant strategic commitments such as Tesla’s $5 billion investment in a new lithium-ion battery plant in Nevada, the so-called Gigafactory. Batteries are the most critical component for electric vehicles. To accomplish this major undertaking, Tesla has partnered with Panasonic of Japan, a world leader in battery technology.
7
Elements of a Good Strategy: Implementation
A set of coherent actions
Example: Tesla
Ramp-up of production volumes
Achieve economies of scale
Cutting edge robotics
Secure steady supply of batteries
Network of charging stations
Sharing of technology
©McGraw-Hill Education.
Tesla appears to implement its formulated strategy with actions consistent with its diagnosis of the competitive challenge. To accomplish building a cost-competitive mass-market vehicle, Tesla must benefit from economies of scale, which are decreases in cost per vehicle as output increases. To reap these critical cost reductions, Tesla must ramp up its production volume. This is a huge challenge: Tesla aims to increase its production output by some 20 times, from 50,000 cars built in 2015 to 1 million cars per year by 2020. Tesla’s retooling of its manufacturing facility in Fremont, California, to rely more heavily on cutting-edge robotics as well as its multibillion-dollar investment to secure an uninterrupted supply of lithium-ion batteries are examples of actions coherent with Tesla’s formulated strategy. At the same time, Tesla is further building out its network of charging stations across the United States and globally. To fund this initiative, it announced that using the company’s charging network will no longer be free for new Tesla owners.
8
Competitive Advantage
Superior performance relative to other competitors in the same industry or the industry average.
Assess competitive advantage:
Compare firm to competitors in the same industry.
Compare firm to industry average.
©McGraw-Hill Education.
In terms of stock market valuation, Tesla has appreciated much more in recent years than GM, Ford, or Chrysler, and thus appears to have a competitive advantage, at least on this dimension.
Instructors:
The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides more background with an analogy from track and field to further discuss competitive advantage. (LO 1-2).
9
Sustainable Competitive Advantage
A firm that is able to outperform its competitors or the industry average over a prolonged period
Example: Apple (smartphone industry)
Sustainable competitive advantage over Samsung
Has lasted over a decade
©McGraw-Hill Education.
Apple, for example, has enjoyed a sustainable competitive advantage over Samsung in the smartphone industry for over a decade since its introduction of the iPhone in 2007. Other phone makers such as Microsoft (which purchased Nokia) and BlackBerry have all but exited the smartphone market, while new entrants such as Xiaomi and Huawei of China are trying to gain traction.
10
Competitive Disadvantage & Competitive Parity
Competitive Disadvantage: A firm that underperforms its rivals or the industry average.
Example: Is 15% ROIC superior?
Depends on the industry
20% ROIC is expected in the consulting industry
Competitive Parity: two or more firms that perform at the same level.
©McGraw-Hill Education.
11
How to Gain a Competitive Advantage
Provide goods or services consumers value more highly than those of its competitors, or
Provide goods or services similar to the competitors’ at a lower price.
©McGraw-Hill Education.
12
Profitability and Market Share
The rewards of superior value creation and capture.
Examples:
Tesla: electric vehicles address global warming
Spanx: shapewear changes women’s lives
Walmart: lowest prices for customers
©McGraw-Hill Education.
13
Strategic Positioning
A unique position within an industry that allows the firm to provide value to customers, while controlling costs.
Value Creation – Costs = Economic Contribution
The greater, the better
Enhances the likelihood of a competitive advantage
©McGraw-Hill Education.
14
Strategic Positioning Requires Trade-offs
Managers must make conscious trade-offs.
How to allocate resources
Which activities to pursue
Example: The retail industry
Walmart – Cost Leader
Big box outlet / low prices
Nordstrom – Differentiator
Professional salespeople / luxury setting
©McGraw-Hill Education.
15
A Unique Strategic Position
The key to successful strategy
Requires combining activities
Competitive advantage has to come from:
Performing different activities or
Performing the same activities differently than rivals
Example: Walmart
Strategic activities strengthen its position as cost leader
Big stores, low overhead, low wages
©McGraw-Hill Education.
Example: Walmart’s strategic activities strengthen its position as cost leader: big retail stores in rural locations, extremely high purchasing power, sophisticated IT systems, regional distribution centers, low corporate overhead, and low base wages and salaries combined with employee profit sharing reinforce each other, to maintain the company’s cost leadership.
16
What Strategy Is Not
Grandiose statements
Example: “We will be No. #1”
A failure to face a competitive challenge
Example: Blockbuster didn’t address Netflix, Redbox, Amazon Prime, and Hulu
Operational effectiveness, competitive benchmarking, or tactical tools
Examples: “pricing strategy,” “operations strategy,” “brand strategy”
©McGraw-Hill Education.
17
Defining Vision, Mission and Values
The first step in gaining and sustaining a competitive advantage
Vision:
What do we want to accomplish ultimately?
Mission:
How do we accomplish our goals?
Values:
What commitments do we make, and what guardrails do we put in place, to act both legally and ethically as we pursue our vision and mission?
©McGraw-Hill Education.
Strategic leaders need to begin with the end in mind. In fact, early on strategic success is created twice. Leaders create the vision in the abstract by formulating strategies that enhance the chances of gaining and sustaining competitive advantage, before any actions of strategy implementation are taken in a second round of strategy creation. This process is similar to building a house. The future owner must communicate her vision to the architect, who draws up a blueprint of the home for her review. The process is iterated a couple of times until all the homeowner’s ideas have been translated into the blueprint. Only then does the building of the house begin. The same holds for strategic success; it is first created through strategy formulation based on careful analysis before any actions are taken.
18
Vision
Captures an organization’s aspiration
Identifies the long-term objective
Should be forward-looking and inspiring
An effective vision:
Pervades the organization
Provides a sense of winning
Motivates employees to aim for the same target
©McGraw-Hill Education.
Example: Nordstrom’s vision: “provide outstanding service every day, one customer at a time”
Instructors:
The digital companion to this book McGraw-Hill Connect has an animated video exercise on this section of the textbook. It provides an example of the first people to climb Mount Everest as an example of the importance of vision, mission and values. (LO 1-3).
19
Vision: Strategic Intent
Outlines a firm’s stretch goal
Is based on a firm’s vision
Actions based on vision will:
Build necessary resources
Build capabilities
Ensure continuous organizational learning
Ensure learning from failure
©McGraw-Hill Education.
Strategy Highlight 1.1 shows how Wendy Kopp, the founder of Teach for America, uses an inspiring vision to effectively and clearly communicate what TFA ultimately wants to accomplish, while providing a stretch goal.
20
Mission
What an organization actually does
The products and services it will provide
The markets in which it will compete
Defines how the vision is accomplished
©McGraw-Hill Education.
Strategy Highlight 1.1 shows how we can recast Teach for America’s mission that it will achieve its vision by enlisting, developing, and mobilizing as many as possible of our nation’s most promising future leaders to grow and strengthen the movement for educational equity and excellence. (See Exhibit 1.1).
21
Mission: Strategic Commitments
Credible actions that back up vision and mission statements.
These commitments are often:
Costly
Long-term oriented
Difficult to reverse
©McGraw-Hill Education.
As mentioned in the Chapter Case, Tesla is investing billions of dollars to equip its car factory in California with cutting-edge robotics and to build the Gigafactory producing lithium-ion batteries in Nevada. These investments by Tesla are examples of strategic commitments because they are costly, long-term, and difficult to reverse. They are clearly supporting Tesla’s vision to accelerate the world’s transition to sustainable transport. Tesla hopes to translate this vision into reality by providing affordable zero-emission mass-market cars that are the best in class, which captures Tesla’s mission.
22
Customer vs. Product Oriented Vision Statements
Customer-oriented vision statements allow companies to adapt to changing environments.
Focus employees on problem solving for the customer
Product-oriented vision statements often constrain this ability.
Focus employees on improving existing products and services
©McGraw-Hill Education.
Clayton Christensen shares how a customer focus let him help a fast food chain increase sales of milkshakes. The company approached Christensen after it had made several changes to its shake offering based on extensive customer feedback but sales failed to improve. Rather than asking customers what kind of milkshake they wanted, he thought of the problem in a different way. He observed customer behavior and then asked customers, “What job were you trying to do that caused you to hire that milkshake?”
23
Product Oriented Vision Statements
Defines a business in terms of a good or service provided
Forces managers to take a more myopic view
Can hinder understanding of the competitive landscape
Example: U.S. Railroad Companies
They were focused on the railroad business
They should have focused on transportation and logistics
©McGraw-Hill Education.
24
Customer Oriented Vision Statements
Defines a business in terms of providing solutions to customer needs
Customer needs may change
The means of meeting those needs may change also
Example: Ford Motor Company
Entered the market in the early 1900’s
He didn’t build a better horse and buggy
Ford’s focus: personal mobility
©McGraw-Hill Education.
25
Customer-Oriented Vision Statement Examples
VISION STATEMENTS
Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.
Alibaba: To make it easy to do business anywhere.
Better World Books: To harness the power of capitalism to bring literacy and opportunity to people around the world.
Facebook: To make the world more open and connected.
GE: To move, cure, build and power the world.
Google: To organize the world’s information and make it universally accessible and useful.
Nike: To bring inspiration and innovation to every athlete in the world.
Tesla: To accelerate the world’s transition to sustainable energy.
SpaceX: To make human life multi planetary.
Walmart: To be the best retailer in the hearts and minds of consumers and employees.
©McGraw-Hill Education.
Exhibit 1.2
26
Vision and Competitive Advantage
Research shows that vision statements and firm performance are related.
This relationship is strongest when:
The vision is customer-oriented.
Internal stakeholders help define the vision.
Organizational structures align to the vision.
Example: Compensation
©McGraw-Hill Education.
Instructors:
The digital companion to this book McGraw-Hill Connect has a video exercise on this section of the textbook. It provides an interview with the president of a human society and discusses the importance of their vision in the success of the non-profit. (LO 1-3).
27
Values
Helps employees
Understand the company culture
Deal with complexity
Resolve conflict
Organizational core values
Ethical standards and norms
Govern the behavior of individuals
Provide stability to the strategy
Serve as guardrails to keep the company on track
©McGraw-Hill Education.
Consider that much of unethical behavior, while repugnant, may not be illegal. Often we read the defensive comment from a company under investigation or fighting a civil suit that “we have broken no laws.” However, any firm that fails to establish extra-legal, ethical standards will be more prone to behaviors that can threaten its very existence. A company whose culture is silent on moral lapses breeds further moral lapses. Over time such a culture could result in a preponderance of behaviors that cause the company to ruin its reputation, at the least, or slide into outright legal violations with resultant penalties and punishment, at the worst.
28
The AFI Strategy Framework
Helps managers craft and execute a strategy.
Enhances chances of achieving superior performance.
Includes three broad tasks:
Analyze (A)
Formulate (F)
Implement (I)
©McGraw-Hill Education.
29
The AFI Strategy Framework (1 of 2)
Jump to Appendix 2 for long image description
©McGraw-Hill Education.
Exhibit 1.3
30
The AFI Strategy Framework (2 of 2)
Consists of interdependent relationships
This framework:
Explains and predicts differences in firm performance
Helps managers formulate and implement a strategy
In each section, managers focus on specific questions
These are addressed in each chapter.
©McGraw-Hill Education.
31
Strategy Analysis (A) Topics and Questions (1 of 2)
Chapter 2: Strategic leadership and the strategy process
What roles do strategic leaders play?
What is the firm’s process for creating strategy and how does strategy come about?
What is the relationship between stakeholder strategy and competitive advantage?
Chapter 3: External analysis
What effects do forces in the external environment have on the firm’s potential to gain and sustain a competitive advantage?
How should the firm deal with them?
©McGraw-Hill Education.
32
Strategy Analysis (A) Topics and Questions (2 of 2)
Chapter 4: Internal analysis
What effects do internal resources, capabilities, and core competencies have on the firm’s potential to gain and sustain a competitive advantage?
How should the firm leverage them for competitive advantage?
Chapter 5: Competitive advantage, firm performance, and business models
How does the firm make money?
How can one assess and measure competitive advantage?
What is the relationship between competitive advantage and firm performance?
©McGraw-Hill Education.
33
Strategy Formulation (F) Topics and Questions
Chapters 6 and 7: Business strategy
How should the firm compete: cost leadership, differentiation, or value innovation?
Chapters 8 and 9: Corporate strategy
Where should the firm compete: industry, markets, and geography?
Chapter 10: Global strategy
How and where should the firm compete: local, regional, national, or international?
©McGraw-Hill Education.
34
Strategy Implementation (I) Topics and Questions
Chapter 11: Organizational design
How should the firm organize to turn the formulated strategy into action?
Chapter 12: Corporate governance and business ethics
What type of corporate governance is most effective?
How does the firm anchor strategic decisions in business ethics?
©McGraw-Hill Education.
35
Appendices
Descriptions of Visual Graphics to Support
Student Accessibility Needs
©McGraw-Hill Education.
Appendix 1 The AFI Strategy Framework
This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each theme. The important inside circle is titled “Gaining and Sustaining a Competitive Advantage” that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation.
Each of these outer five circles have a brief description beside them to explain what the circle means:
Under the first outer circle titled “Getting Started,” it says: Part 1, Strategy Analysis, “What is Strategy (Chapter 1)” and “Strategic Leadership: Managing the Strategy Process (Chapter 2).”
Under the second outer circle titled “External and Internal Analysis,” it says: Part 1, Strategy Analysis, “External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3),” “Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4),” and “Competitive Advantage, Firm Performance, and Business Models (Chapter 5).”
Under the third outer circle titled “Formulation: Business Strategy,” it says: Part 2, Strategy Formulation, “Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)” and “Business Strategy, Innovation and Entrepreneurship (Chapter 7).”
Under the fourth outer circle titled “Formulation: Corporate Strategy,” it says: Part 2, Strategy Formulation, “Corporate Strategy: Vertical Integration and Diversification (Chapter 8),” “Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9),” and “Global Strategy: Competing Around the World (Chapter 10).”
Under the fifth outer circle titled “Implementation,” it says: Part 3, Strategy Implementation, “Organizational Design: Structure, Culture and Control (Chapter 11),” and “Corporate Governance and Business Ethics (Chapter 12).”
Return to slide
©McGraw-Hill Education.
37
Appendix 2 The AFI Strategy Framework
This image shows several circles, representing the main themes from the textbook, as well as how the chapters map into each theme. The important inside circle is titled “Gaining and Sustaining a Competitive Advantage” that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation.
Each of these outer five circles have a brief description beside them to explain what the circle means:
Under the first outer circle titled “Getting Started,” it says: Part 1, Strategy Analysis, “What is Strategy (Chapter 1)” and “Strategic Leadership: Managing the Strategy Process (Chapter 2).”
Under the second outer circle titled “External and Internal Analysis,” it says: Part 1, Strategy Analysis, “External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3),” “Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4),” and “Competitive Advantage, Firm Performance, and Business Models (Chapter 5).”
Under the third outer circle titled “Formulation: Business Strategy,” it says: Part 2, Strategy Formulation, “Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)” and “Business Strategy, Innovation and Entrepreneurship (Chapter 7).”
Under the fourth outer circle titled “Formulation: Corporate Strategy,” it says: Part 2, Strategy Formulation, “Corporate Strategy: Vertical Integration and Diversification (Chapter 8),” “Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9),” and “Global Strategy: Competing Around the World (Chapter 10).”
Under the fifth outer circle titled “Implementation,” it says: Part 3, Strategy Implementation, “Organizational Design: Structure, Culture and Control (Chapter 11),” and “Corporate Governance and Business Ethics (Chapter 12).”
Return to slide
©McGraw-Hill Education.
38
CHAPTER 2
Strategic Leadership
Managing the Strategy Process
©ISerg/iStock/Getty Images RF
©McGraw-Hill Education.
All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
©McGraw-Hill Education.
Be sure to see the NEW Teacher’s Resource Manual located in the Connect Library under Instructor’s Resources.
1
The AFI Strategy Framework
Jump to Appendix 1 long image description
©McGraw-Hill Education.
Exhibit 1.3
2
Learning Objectives
LO 2-1 Explain the role of strategic leaders and what they do.
LO 2-2 Outline how you can become a strategic leader.
LO 2-3 Describe the roles of corporate, business, and functional managers in strategy formulation and implementation.
LO 2-4 Evaluate top-down strategic planning, scenario planning, and strategy as planned emergence.
LO 2-5 Assess the relationship between stakeholder strategy and sustainable competitive advantage.
LO 2-6 Conduct a stakeholder impact analysis.
©McGraw-Hill Education.
What Is Strategic Leadership?
Successful use of power and influence
Directing the activities of others
Pursuing an organization’s goals
Enabling organizational competitive advantage
©McGraw-Hill Education.
In leading Facebook to become the most successful social network and one of the most valuable technology companies worldwide, Sheryl Sandberg has clearly demonstrated effective strategic leadership. As chief operating officer, Sandberg has tremendous position power because she is the second in command at Facebook and reports only to CEO Mark Zuckerberg. Sandberg’s business development skills are legend: She transformed a money-losing outfit into a titan of online advertising, with some $25 billion in annual revenues. She designed and implemented Facebook’s business model (how it makes money). In particular, Sandberg has attracted high-profile advertisers by demonstrating how Facebook can place precisely targeted and timed ads when it matches what it knows about each user, based on that person’s social networks, with the advertisers’ targets. Less quantifiable, but perhaps an even more valuable contribution, Sandberg provides “adult supervision and a professional face” for a firm populated by socially awkward computer geeks.
4
Leaders Can Positively Impact Performance
Mark Zuckerberg – Facebook
Elon Musk – Tesla and SpaceX
Jeff Bezos – Amazon
Oprah Winfrey – HARPO
Sheryl Sandberg – Facebook
Angela Ahrendts – Apple
Mary Barra – General Motors
Howard Schultz – Starbucks
©McGraw-Hill Education.
5
Leaders Can Destroy Shareholder Value
Ken Lay – Enron
John Sculley – Apple
Bernard Ebbers – WorldCom
Richard Fuld – Lehman Brothers
Richard Wagoner – General Motors
Robert Nardelli – The Home Depot and Chrysler
Ron Johnson – JC Penney
©McGraw-Hill Education.
While the effect of strategic leaders may vary, they clearly matter to firm performance.
6
What Do Strategic Leaders Do?
Exhibit 2.1
SOURCE: Data from O. Bandiera, A. Prat, and R. Sadun (2012), “Management capital at the top: evidence from the time use of CEOs,” London School of Economics and Harvard Business School Working Paper.
Jump to Appendix 2 for long description.
©McGraw-Hill Education.
CEOs spend most of their time “interacting—talking, cajoling, soothing, selling, listening, and nodding—with a wide array of parties inside and outside the organization.” Surprisingly given the advances in information technology, CEOs today spend most of their time in face-to-face meetings. They consider face-to-face meetings most effective in getting their message across and obtaining the information they need.
7
How Do You Become a Strategic Leader?
Leadership actions reflect:
Age, education, and career experiences
Personal interpretations of situations
Strong leadership: innate abilities and learning
©McGraw-Hill Education.
8
Upper Echelon’s Theory
Organizational outcomes reflect the values of the top management team.
Outcomes include:
Strategic choices
Performance levels
©McGraw-Hill Education.
The theory states that strategic leaders interpret situations through the lens of their unique perspectives, shaped by personal circumstances, values, and experiences. Their leadership actions reflect characteristics of age, education, and career experiences, filtered through personal interpretations of the situations they face. The upper-echelons theory favors the idea that effective strategic leadership is the result of both innate abilities and learning.
9
Great Companies
Based on the bestseller Good to Great
Written by Jim Collins
Over 1,000 companies were analyzed.
Great companies had things in common:
Sustained competitive advantage
Stock returns of almost 7x the general market
Consistent patterns of leadership
Summarized in the Level 5 Leadership Pyramid
©McGraw-Hill Education.
A lot has happened since the book was published over a decade ago. Today only a few of the original 11 stayed all that great, including Kimberly-Clark and Walgreens. Some fell back to mediocrity; a few no longer exist in their earlier form or at all. Anyone remember Circuit City or Fannie Mae? Let’s agree that competitive advantage is hard to achieve and even harder to sustain. But his study remains valuable for its thought-provoking observations.
10
Level-5 Leadership Pyramid
Exhibit 2.2
(Adapted to compare corporations and entrepreneurs) SOURCE: Adapted from J. Collins (2001), Good to Great: Why Some Companies Make the Leap . . . And Others Don’t (New York: HarperCollins), 20.
Jump to Appendix 3 long image description
©McGraw-Hill Education.
In the bestseller Good to Great, Jim Collins explored over 1,000 good companies to find 11 great ones. Collins found consistent patterns of leadership among the top companies, as pictured in the Level-5 leadership pyramid. Collins found that all the companies he identified as great were led by Level-5 executives. So if you are interested in becoming an ethical and strategic leader, the leadership pyramid suggests the areas of growth required.
11
Progression of Leaders Through the Pyramid
Each level builds upon the previous one.
Prior levels must be mastered before moving on.
Each level helps individuals develop the capacity for greater success.
A Level-5 executive:
Works to help the organization succeed
Helps others reach their full potential
©McGraw-Hill Education.
As detailed in the Chapter Case, Facebook CEO Mark Zuckerberg highly values Sheryl Sandberg, the COO. Here he says why: “She could go be the CEO of any company that she wanted, but I think the fact that she really wants to get her hands dirty and work, and doesn’t need to be the front person all the time, is the amazing thing about her. It’s that low-ego element, where you can help the people around you and not need to be the face of all the stuff.”14 Clearly, Sandberg is a Level-5 executive: She builds enduring greatness at Facebook through a combination of skill, willpower, and humility.
12
The Strategy Process
Strategy Formulation:
The choice of strategy
Where and how to compete
Strategy Implementation:
Organization, coordination, integration
How work gets done
The execution of strategy
©McGraw-Hill Education.
The Strategy Process Across Levels
Corporate Strategy
Where to compete?
Industry, markets, and geography
Business Strategy
How to compete?
Cost leadership, differentiation, or value innovation
Functional Strategy
How to implement a chosen business strategy?
©McGraw-Hill Education.
Formulation and Implementation Across Levels
Exhibit 2.3
Jump to Appendix 4 long image description
©McGraw-Hill Education.
Although we generally speak of the firm in an abstract form, individual employees make strategic decisions—whether at the corporate, business, or functional level
Instructors:
The digital companion to this book McGraw-Hill Connect has an application exercise on this section of the textbook. It builds student confidence on strategy across levels.
15
Corporate Strategy
Decide in which industries, markets, and geographies their companies should compete.
Corporate executives:
Create synergies across SBUs.
Decide whether to enter or exit industries and markets.
Set strategic objectives.
Allocate scarce resources among SBU.
Monitor performance.
Make adjustments to the portfolio as needed.
©McGraw-Hill Education.
Corporate executives at headquarters formulate corporate strategy. Think of corporate executives including Sheryl Sandberg (Facebook), Jeffrey Immelt (GE), Virginia Rometty (IBM), Mukesh Ambani (Reliance Industries), Ursula Burns (Xerox), or Marilyn Hewson (Lockheed Martin). Corporate executives need to decide in which industries, markets, and geographies their companies should compete.
16
Business Strategy
Standalone division of corporate
Profit and loss responsibility
Work with corporate to determine business strategy
Cost leadership
Differentiation
Value innovation
©McGraw-Hill Education.
Example: Rosalind Brewer, CEO of Sam’s Club, pursues a somewhat different business strategy from the strategy of parent company Walmart. By offering higher-quality products and brand names with bulk offerings and by prescreening customers via required Sam’s Club memberships to establish creditworthiness, Brewer is able to achieve annual revenues of roughly $60 billion. This would place Sam’s Club in the top 50 in the Fortune 500 list. Although as CEO of Sam’s Club, Brewer is responsible for the performance of this strategic business unit, she reports to Walmart’s CEO, C. Douglas McMillon, who as corporate executive oversees Walmart’s entire operations, with close to $500 billion in annual revenues and over 11,000 stores globally.
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Functional Strategy
Within each strategic business unit:
Accounting
Finance
Human resources
Product development
Operations
Manufacturing
Marketing
Customer service
Functional managers are responsible for decisions and actions within the function.
©McGraw-Hill Education.
Each functional manager is responsible for decisions and actions within a single functional area. These decisions aid in the implementation of the business-level strategy, made at the level above.
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Three Approaches to Organizational Strategy
Strategic planning
A formal, top-down planning approach
Scenario planning
A formal, top-down planning approach
Strategy as planned emergence
Begins with a strategic plan, but is less formal
©McGraw-Hill Education.
This order also reflects how these approaches were developed. The prosperous decades after World War II resulted in tremendous growth of corporations. As company executives needed a way to manage ever more complex firms more effectively, they began to use strategic planning.
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Top Down Strategic Planning (1 of 2)
Data-driven strategy process
Top management attempts to program future success through
Analysis of:
Prices
Costs
Margins
Market demand
Head count
Production runs
Five year plans and correlated budgets
Performance monitoring
©McGraw-Hill Education.
Top-Down Strategic Planning (2 of 2)
Exhibit 2.4
Jump to Appendix 5 long image description
©McGraw-Hill Education.
Top-down strategic planning more often rests on the assumption that we can predict the future from the past. The approach works reasonably well when the environment does not change much.
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Shortcomings of the Top-Down Approach
May not adapt well to change
Formulation separate from implementation
Information flows one-way
Leaders’ future vision can be wrong
Example: Apple
Steve Jobs predicted customers needs
Apple didn’t engage in market research
Since Cook took over, their planning process has evolved
©McGraw-Hill Education.
Under its co-founder and long-time CEO, Steve Jobs, Apple was one of the few successful tech companies using a top-down strategic planning process. Jobs felt that he knew best what the next big thing should be. Under his top-down, autocratic leadership, Apple did not engage in market research, because Jobs firmly believed that “people don’t know what they want until you show it to them.” This traditional top-down strategy process served Apple well as it became the world’s most valuable technology company. Since Jobs’ death, however, Apple’s strategy process has become more flexible under CEO Tim Cook, and the company is now trying to incorporate the possibilities of different future scenarios and bottom-up strategic initiatives. Isaacson, W. (2011), Steve Jobs (New York: Simon & Schuster). See also: Isaacson, W. (2012), “The real leadership lessons of Steve Jobs,” Harvard Business Review, April.
Jobs, S., “There is sanity returning,” BusinessWeek, May 25, 1998. “CEO Tim Cook pushes employee-friendly benefits long shunned by Steve Jobs,” The Wall Street Journal, November 12, 2012.
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Scenario Planning (1 of 2)
Asks “what if” questions:
Top management envisions different scenarios
Then they derive strategic responses
Optimistic and pessimistic futures planned
Considerations can include:
New laws
Demographic shifts
Changing economic conditions
Technological advances
©McGraw-Hill Education.
Scenario Planning (2 of 2)
Exhibit 2.5
Jump to Appendix 6 long image description
©McGraw-Hill Education.
To model the scenario-planning approach, place the elements in the AFI strategy framework in a continuous feedback loop, where analysis leads to formulation to implementation and back to analysis. This image conveys the dynamic and iterative method of scenario planning.
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Approaches to Scenario Planning
Obtain input from different levels and functions
R&D, manufacturing, and marketing and sales
Determine how to compete situationally
Example: UPS
What if the price of a barrel of oil was $35, or $100, or even $200?
Attach probabilities to different future states:
Highly likely vs. unlikely
85% vs. 2% likely
©McGraw-Hill Education.
Black Swan Events
The high impact of a highly improbable event.
In the past, most people assumed that all swans were white.
When they first encountered swans that were black, they were surprised.
Examples:
Security breach of an IT system
Accounting Scandals: Enron
Real Estate Bubble: 2008 financial crisis
©McGraw-Hill Education.
Questions to Ask in Scenario Planning
What resources and capabilities do we need to compete successfully in each scenario?
What strategic initiatives should we put in place to respond to each scenario?
How can we shape our expected future environment?
©McGraw-Hill Education.
Typical scenario planning addresses both optimistic and pessimistic futures. For instance, strategy executives at UPS identified a number of issues as critical to shaping its future competitive scenarios: (1) big data analytics; (2) being the target of a terrorist attack, or having a security breach or IT system disruption; (3) large swings in energy prices, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities; (4) fluctuations in exchange rates or interest rates; and (5) climate change. Managers then formulate strategic plans they could activate and implement should the envisioned optimistic or pessimistic scenarios begin to appear.
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Strategy as Planned Emergence
Top Down and Bottom Up
Bottom-up strategic initiatives emerge
Evaluated & coordinated by management
Relies on data, plus:
Personal experience
Deep domain expertise
Front line employee insights
©McGraw-Hill Education.
Example: many changes have occurred in the online retail industry
Some companies have flourished: Amazon and eBay
Others have been forced to adjust: Best Buy, Home Depot, JCPenney
Others are now out of business: Circuit City and Radio Shack
Instructors:
The digital companion to this book McGraw-Hill Connect has an interactive case exercise on this section of the textbook. It builds student confidence on emergent strategy using a short case about 3M (LO 2-6).
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Key Points About Strategy
Intended strategy
The outcome of a rational and structured top-down strategic plan
Realized strategy
Combination of intended and emergent strategy
Emergent strategy
Any unplanned strategic initiative
Bubbles up from the bottom of the organization
Can influence and shape a firm’s overall strategy
©McGraw-Hill Education.
Intended vs. Realized Strategy
Jump to Appendix 7 for long description.
©McGraw-Hill Education.
Exhibit 2.6. This figure illustrates how parts of a firm’s intended strategy are likely to fall by the wayside because of unpredictable events and turn into unrealized strategy.
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Strategic Initiatives
Any activity a firm pursues to explore and develop
New products and processes
New markets
New ventures
Can bubble up from deep within a firm through:
Autonomous actions
Serendipity
Resource-allocation process (RAP)
©McGraw-Hill Education.
For example, the new delivery-by-drone project at Amazon.com was conceived of and invented by a low-level engineer. Even relatively junior employees can come up with strategic initiatives that can make major contributions if the strategy process is sufficiently open and flexible.
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Autonomous Actions, Serendipity, and the Resource Allocation Process (RAP)
Autonomous Actions
Strategic initiatives undertaken by employees
In response to unexpected situations
Serendipity
Random events, surprises, coincidences
Has an effect on strategic initiatives
Resource-Allocation Process (RAP)
How a firm allocates resources based on policy
Helps shape realized strategy
©McGraw-Hill Education.
There are dozens of examples where serendipity had a crucial influence on the course of business and entire industries. The discovery of 3M’s Post-it Notes or Pfizer’s Viagra, first intended as a drug to treat hypertension, are well known.35 Less well known is the discovery of potato chips.36 The story goes that in the summer of 1853, George Crum was working as a cook at the Moon Lake Lodge resort in Saratoga Springs, New York. A grumpy patron ordered Moon resort’s signature fried potatoes. These potatoes were served in thick slices and eaten with a fork as was in the French tradition. When the patron received the fries, he immediately returned them to the kitchen, asking for them to be cut thinner. Crum prepared a second plate in order to please the patron, but this attempt was returned as well. The third plate was prepared by an annoyed Crum who, trying to mock the patron, sliced the potatoes sidewise as thin as he could and fried them. Instead of being offended, the patron was ecstatic with the new fries and suddenly other patrons wanted to try them as well. Crum later opened his own restaurant and offered the famous “Saratoga Chips,” which he set up in a box and some customers simply took home as a snack to be eaten later. Today, PepsiCo’s line of Frito-Lay’s chips are a multibillion-dollar business.
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Companies with Good Strategy Are Valuable
Companies with a good strategy:
Provide products or services to consumers at an affordable price
Make a profit
Can provide benefits such as:
Education, infrastructure, public safety, health care, clean water and air
Strategic failure is expensive
©McGraw-Hill Education.
Example of how Strategic failure can be expensive: once a leading technology company, Hewlett-Packard was known for innovation, resulting in superior products. The “HP way of management” included lifetime employment, generous benefits, work/life balance, and freedom to explore ideas, among other perks. However, HP has not been able to address the competitive challenges of mobile computing or business IT services effectively. As a result, HP’s stakeholders suffered. Shareholder value was destroyed massively. The company also had to lay off tens of thousands of employees. Its customers no longer received the innovative products and services that made HP famous.
Instructors:
The digital companion to this book McGraw-Hill Connect has an application exercise on this section of the textbook. It builds student confidence on stakeholders (LO 1-4).
33
Stakeholders
Organizations, groups, and individuals
Can affect or are affected by a firm’s actions
Have an interest in the performance and survival of the firm
Internal stakeholders:
Stockholders, employees (including executives, managers, and workers), and board members
External stakeholders:
Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments at various levels
©McGraw-Hill Education.
All stakeholders make specific contributions to a firm, which in turn provides different types of benefits to different stakeholders. Employees contribute their time and talents to the firm, receiving wages and salaries in exchange. Shareholders contribute capital in the hope that the stock will rise and the firm will pay dividends. Communities provide real estate, infrastructure, and public safety. In return, they expect that companies will pay taxes, provide employment, and not pollute the environment. The firm, therefore, is embedded in a multifaceted exchange relationship with a number of diverse internal and external stakeholders.
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Internal and External Stakeholders in an Exchange Relationship with the Firm
Exhibit 2.8
Jump to Appendix 8 long image description
©McGraw-Hill Education.
If any stakeholder withholds participation in the firm’s exchange relationships, it can negatively affect firm performance. The aerospace company Boeing, for example, has a long history of acrimonious labor relations, leading to walk-outs and strikes. This in turn has not only delayed production of airplanes but also raised costs. Borrowers who purchased subprime mortgages are stakeholders (in this case, customers) of financial institutions. When they defaulted in large numbers, they threatened the survival of these financial institutions and, ultimately, of the entire financial system.
35
Stakeholder Strategy
An integrative approach to managing a diverse set of stakeholders to gain and sustain competitive advantage
Stakeholder management benefits firm performance
Stakeholders more cooperative
Lower business transaction cost
Greater adaptability and flexibility
More predictable returns
Stronger reputation
©McGraw-Hill Education.
Satisfied stakeholders are more cooperative and thus more likely to reveal information that can further increase the firm’s value creation or lower its costs.
Increased trust lowers the costs for firms’ business transactions.
Effective management of the complex web of stakeholders can lead to greater organizational adaptability and flexibility.
The likelihood of negative outcomes can be reduced, creating more predictable and stable returns.
Firms can build strong reputations that are rewarded in the marketplace by business partners, employees, and customers.
Example: Target Corporation has gathered numerous awards that reflect its strong relationship with its stakeholders. It has been named on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation. Since its founding, Target has contributed 5 percent of its profits to education, the arts, and social services in the communities in which it operates and reached the milestone of contributing $4 million per week in 2012. To demonstrate its commitment to minorities and women, Target launched a program to bring minority- and women-owned businesses into its supply chain. Volunteerism and corporate giving strengthen the relationship Target has with its employees, consumers, local communities, and suppliers. These actions, along with many others, can help Target gain competitive advantage as a retailer as long as the benefits Target accrues from its stakeholder strategy exceed the costs of such programs.
Kapner, S., L. Stevens and S. Germano, “Wal-Mart and Target take fight to Amazon for holiday sales,” The Wall Street Journal, November 28, 2014.
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Stakeholder Impact Analysis (1 of 2)
A decision tool
Helps strategic leaders can recognize, prioritize, and address the needs of different stakeholders.
Important stakeholder attributes:
Power: control over actions
Legitimacy: valid concerns
Urgency: require immediate attention
©McGraw-Hill Education.
A stakeholder has power over a company when it can get the company to do something that it would not otherwise do.
A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate.
A stakeholder has an urgent claim when it requires a company’s immediate attention and response.
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Stakeholder Impact Analysis (2 of 2)
Exhibit 2.9
Jump to Appendix 9 long image description
©McGraw-Hill Education.
Examples:
Boeing opened a new airplane factory in South Carolina to move production away from its traditional plant near Seattle, Washington. South Carolina is one of 28 states in the United States that falls under the right-to-work law in which employees in unionized workplaces are allowed to work without being required to join the union. In contrast to its work force in Washington state, the South Carolina plant is nonunionized, which should lead to fewer work interruptions due to strikes and Boeing hopes to higher productivity and improvements along other performance dimensions (like on-time delivery of new airplanes). In 2014, Boeing announced that its new 787 Dreamliner jet would be exclusively built in its nonunionized South Carolina factory.
Many companies incentivize top executives by paying part of their overall compensation with stock options. They also turn employees into shareholders through employee stock ownership plans (ESOPs). These plans allow employees to purchase stock at a discounted rate or use company stock as an investment vehicle for retirement savings. For example, Alphabet, Coca-Cola, Facebook, Microsoft, Southwest Airlines, Starbucks, Walmart, and Whole Foods all offer ESOPs
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The Pyramid of Corporate Social Responsibility
Exhibit 2.10
SOURCE: Adapted from A. B. Carroll (1991), “The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders,” Business Horizons, July-August: 42.
Jump to Appendix 10 long image description
©McGraw-Hill Education.
Philanthropic responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society. Over the years, Microsoft’s corporate philanthropy program has donated more than $3 billion in cash and software to people who can’t afford computer technology.
Instructors:
The digital companion to this book McGraw-Hill Connect has an application exercise on this section of the textbook. It builds student confidence on corporate and societal responsibilities (LO 1-5).
According to the CSR perspective, managers need to realize that society grants shareholders the right and privilege to create a publicly traded stock company. Therefore, the firm owes something to society. Moreover, CSR provides managers with a conceptual model that more completely describes a society’s expectations and can guide strategic decision making more effectively. For an insightful but critical treatment of this topic, see the 2003 Canadian documentary film The Corporation.
39
Appendices
Descriptions of Visual Graphics to Support
Student Accessibility Needs
©McGraw-Hill Education.
Appendix 1 The AFI Strategy Framework
The important inside circle is titled “Gaining and Sustaining a Competitive Advantage” that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation.
Each of these outer five circles have a brief description beside them to explain what the circle means:
Under the first outer circle titled “Getting Started,” it says: Part 1, Strategy Analysis, “What is Strategy (Chapter 1)” and “Strategic Leadership: Managing the Strategy Process (Chapter 2).”
Under the second outer circle titled “External and Internal Analysis,” it says: Part 1, Strategy Analysis, “External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3),” “Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4),” and “Competitive Advantage, Firm Performance, and Business Models (Chapter 5).”
Under the third outer circle titled “Formulation: Business Strategy,” it says: Part 2, Strategy Formulation, “Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)” and “Business Strategy, Innovation and Entrepreneurship (Chapter 7).”
Under the fourth outer circle titled “Formulation: Corporate Strategy,” it says: Part 2, Strategy Formulation, “Corporate Strategy: Vertical Integration and Diversification (Chapter 8),” “Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9),” and “Global Strategy: Competing Around the World (Chapter 10).”
Under the fifth outer circle titled “Implementation,” it says: Part 3, Strategy Implementation, “Organizational Design: Structure, Culture and Control (Chapter 11),” and “Corporate Governance and Business Ethics (Chapter 12).”
Return to slide
©McGraw-Hill Education.
Appendix 2 What Do Strategic Leaders Do?
This image is of a pie chart, which shows that CEOs typically spend, on average, 67 percent of their time in meetings, 13 percent working alone, 7 percent on e-mail, 6 percent on phone calls, 5 percent on business meals, and 2 percent on public events such as ribbon-cutting for a new factory.
Return to slide
©McGraw-Hill Education.
Appendix 3 Level-5 Pyramid
This image shows a pyramid that progresses from Level 1 at the lowest part of the pyramid to Level 5 at the highest part of the pyramid. The levels as they progress are
Level 1: Highly Capable Individual
Level 2: Contributing Team Member
Level 3: Competent Manager
Level 4: Effective Leader
Level 5: Executive
Return to slide
©McGraw-Hill Education.
Appendix 4 Strategy Formulation and Implementation Across Levels
This image shows several boxes in an organization-chart format. At the top level, is “Headquarters Corporate Strategy: Where to Compete?,” below that box are three different boxes, Option 1 Cost Leadership, Option 2 Differentiation, Option 3 Value Innovation, each of which say “Business Strategy, How to Compete?.” After choosing one of these options, the next level is labeled Business Function 1, Business Function 2, and Business Function n 4. Each of these four boxes say “Functional Strategy: How to Implement Business Strategy?”
Return to slide
©McGraw-Hill Education.
Appendix 5 Top-Down Strategic Planning
This image depicts three boxes. The top box is titled “Analysis” and contains three bullets titled Vision, Mission, and Values, External Analysis, and Internal Analysis. The middle box is titled “Formulation” and contains three bullets titled Corporate Strategy, Business Strategy, Functional Strategy. The bottom box is titled “Implementation” and contains two bullets titled Structure, Culture and Control, and Corporate Governance and Business Ethics.
Return to slide
©McGraw-Hill Education.
Appendix 6 Scenario Planning
The elements in the AFI strategy framework are placed in a continuous feedback loop, where Analysis leads to Formulation to Implementation and back to Analysis. This image elaborates on this simple feedback loop to show the dynamic and iterative method of scenario planning.
Return to slide
©McGraw-Hill Education.
Appendix 7 Intended vs. Realized Strategy
This image shows a big arrow along a line that follows three phases of Analysis, Formulation and Implementation. At the beginning of this line is a box that says “Intended Strategy” which is a top-down strategic plan. Coming out of the intended strategy is unpredictable events, and feeding into the strategy is bottom-up emergent strategy including autonomous actions, serendipity, and the resource allocation process. This activity results in the realized strategy at the end of the graphic.
Return to slide
©McGraw-Hill Education.
Appendix 8 Internal and External Stakeholders in an Exchange Relationship with the Firm
The graphic shows the flow of the relationship between stakeholders and the firm.
The external stakeholders are customers, suppliers, alliance partners, creditors, unions, communities, governments, and media
The internal stakeholders are employees, stockholders, and board members.
Benefits flow from the frim to both of these groups of stakeholders as the firm receives contributions from both.
Return to slide.
©McGraw-Hill Education.
Appendix 9 Stakeholder Impact Analysis
The graphic lists the steps of stakeholder impact analysis.
Step 1: Who are our stakeholders?
Step 2: What are our stakeholders’ interests and claims?
Step 3: What opportunities and threats do our stakeholders present?
Step 4: What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders.
Step 5: What should we do to effectively address the stakeholder concerns?
Return to slide.
©McGraw-Hill Education.
Appendix 10 The Pyramid of Corporate Social Responsibility
The pyramid’s is economic responsibilities: gain and sustain competitive advantage.
The next level is legal responsibilities: laws and regulations are society’s codified ethics; define minimum acceptable standard.
The next level is ethical responsibilities: do what is right, just, and fair.
The tip of the pyramid is philanthropic responsibilities: corporate citizenship.
Return to slide.
©McGraw-Hill Education.
Response
Paige Obriot
Chapter 1 – Another industry that has made very different choices for these trade-offs is the fast-food industry. Panera Bread and McDonalds are very different fast-food chains that offer a completely different menu and prices. Panera Bread offers higher prices because their food is made more fresh than their competitors. On the other hand, McDonald’s offers one of the lowest prices among their competitors even though their food isn’t made fresh but is the most convenient.
Chapter 2 – An industry that is undergoing intense competition is the food industry. Due to COVID-19, these restaurants are required to follow protocols and have changed their maximum capacity to 50% to ensure they are following social distancing. Scenario planning can definitely be used to plan for the future because before the pandemic restaurants didn’t take health precautions that seriously until now. Since there have been required health protocols in order to open for business, restaurants have been paying close attention to the health and safety of their patrons which will turn into more of a routine later on in the future. There are some industries that can benefit more than others from this process because their health protocols needed to improve regardless and having this pandemic sped up the process of implementing these procedures.
William Bennett
Chapter 1
One industry that I find interesting and has heavy competition is that of the hospitality industry. Two brands that come to mind when thinking of trade offs and competitive advantages are Marriott hotels and Super 8 motels. Both, at the very least, offer the guest a room for which they generally rent by the night. Many Super 8 hotels generally just offer guests basic rooms with very little to no amenities such as a pool, free breakfast, restaurant, business centers, etc. The average price of a Super 8 room is right around $75 per night for a weekday not during peak times. Super 8 is similar to the Walmart example provided in the text in that its competitive advantage is that they offer a low cost product. For guests that are looking for more of an experience or more amenities, one might consider staying at one of many Marriott properties. Marriott has properties all over the world which give them a huge competitive advantage to travelers who are brand loyal. A standard room at a courtyard Marriott depending on the location will average around $150, about double the price of a Super 8 room. People are willing to pay more because they want more of an experience during their stay and have expectations while staying at a property under the Marriott name. Marriott has a set of standards that each hotel must abide by giving guests a set of expectations when staying at a Marriott property. Along with these sets of standards are the organizations core values that employees incorporate into their work. Having stayed at both the Courtyard Marriott and Super 8 in Mt. Pleasant, in my experience, the trade off in price in exchange for a hospital staff, higher level of cleanliness, additional amenities, and room quality was worth it for me, but for a traveler looking to just use the room for storage and to sleep for a few hours, the Super 8 may be the better choice.
Chapter 2
One industry that is going through intense competition is that of credit card companies such as American Express, Visa, Mastercard, Discover, and the recent addition of Apple. There are over 1.5 billion credit cards in the US alone with an average of 3.1 credit cards per person. These companies make money in a number of ways but primarily from people having active accounts and incurring interest upon their charges. Scenario planning is being used in this industry to figure out how to market their credit cards to consumers, especially millennials and GenZ’s because these are demographics likely looking for new credit cards. Scenario planning research would find that consumers of these cohorts are price considerate and rather frugal placing more importance on the perks or rewards of each credit card. The effects of COVID-19 have impacted the credit card companies as well. Using scenario planning, some of the banks who issue these credit cards have cut the credit limit for some of their customers in fear of people accumulating a debt that they will not be able to pay back. I believe that credit card companies are those that could significantly benefit from scenario planning due to the mere size of the industry and the billions of dollars and people that use these companies. A failed attempt to plan effectively could result in a drop in quarterly numbers, stock price, loss of investors, loss of jobs, or even bankruptcy if a company’s planing took a drastically wrong turn.
Sources:
https://www.statista.com/topics/1118/credit-cards-in-the-united-states/
https://www.businessinsider.com/credit-card-industry